Mortgage bills to rise on banking chaos

Mortgage bills could rise by hundreds of pounds a year as lenders respond to the chaos.

Squeezed: Homeowners are likely to see mortgage bills rise

One specialist lender, First National, yesterday raised the cost of new mortgages by as much as 1.6 percentage points - adding £166 a month to the cost of a typical £150,000 loan.

The third biggest building society, the Yorkshire, raised some fixed rates by up to 0.3 points.

Experts warn big mainstream lenders are likely to raise rates on both fixed and tracker deals.

The rises came as it emerged that customers of the Lloyds-TSB/Halifax 'super-bank' could be up to £405 a year worse off.

A study for the Daily Mail carried out by personal finance site Moneyfacts.co.uk shows Lloyds-TSB generally offers poorer value products than the Halifax.

It is feared the super-bank could its financial muscle to shift customers to the dearer deals. It comes after figures showed mortgage lending has fallen to its lowest level for three years.

Banks are cautious of lending to each other for fear of being caught out by 'toxic' debt. This has pushed the interest rates banks charge each other to a five-month high - and those costs will be passed on to homebuyers.

Ray Boulger, of the mortgage broker John Charcol, said: 'Expect a raft of increases, probably of around 0.2 percentage points, in the cost of fixed rate mortgages next week and smaller rises in tracker rates.'

First National, part of GE Money, has increased rates by 1.6 percentage points on new loans for those borrowing up to 90% of their home's value.

The bank operates in the subprime-market, lending to those who have failed to repay previous mortgages or have County Court Judgments for unpaid loans against them. iGroup, part of the same group, said it was raising its new deals by 1.7 percentage points for those with a 10% deposit. Yorkshire has raised two-year fixed rates for customers on a 10% deposit from 5.89 to 6.19%. Meanwhile, the cost of loans banks make to each other for two years hit 5.53%, having begun the week at 5.2%.

These swops determine the cost of fixed-rate mortgages.

If that 0.33-point rise were to be passed on in full to customers it would increase the total cost of a two-year, £150,000 loan by £750.

That will come as a blow to the millions of homeowners whose cheap two-year fixed deals are coming to an end.